After being out of beta for a little less than six months our first attempt at a startup (bitspaceapp.com), a music player that lets you upload your music collection, has around 800 users of which only a handful are active users and 25 are paying customers. Did we succeed or fail? Is it too early to tell? Right now we are asking ourselves in what direction we should take our business, if any at all.
The idea for the product was simply born out of my own frustration of loosing my music collection in a hard drive crash and my nerdy need for having a neat and nicely cataloged and index music collection. We didn't set out to create the most original product or to revolutionize anything. We simply wanted to create a good product that did something mildly useful and that could attract a lucrative niche of users (record collectors). But it's not like there is no competition in the music player market, rather the contrary. With competition from products like Spotify and Grooveshark that offer on demand streaming from a wast library of licensed music -- something we would never be able to offer -- its hard to make yourself heard in the marketplace.
So the question really is: We think we have created a useful and well executed product. But how do you know if your business model will work? When can you reliably say that it is a success or failure? 6 months? A year? 5 years? And what measures of success should we consider?
You've done what many people haven't.
1) you launched - you'd be surprised how many people never get to this state
2) you've got a handful of active users and 25 paying customers - also not to be taken lightly.
So first, congratulate yourself for getting to this point.
Is the question you are asking 'you we continue developing this?' or 'what should our next step be?'
First off, I assume you've got the legal side of things covered? If not, look into it and make sure that your technology structure permits you to do what you are doing. As I recall MP3.com and others have been caught out on licensing doing cloud served music files.
Lets assume you're comfortable with where you stand legally.
I assume you've seen this post.. http://apps.ycombinator.com/item?id=1668285
I've been amazed how long it can take to get traction. After more than a year of effort with my site, I pretty much gave up further development and marketing, noticing that nobody in the space was really getting significant traffic, I just figured it wasn't going to go anywhere.
Now I see that some competitors are gaining traction two years after launching. While one who never got much traffic at all was recently purchased.
This is a LONG road. From the info you've provided, you've done very well on the first few steps. If you're still excited about the product and have a good roadmap, than I think you could be on your way to success.
Don't underestimate the need for further marketing and refinement of your product offering.
At the same time, coming from the music space myself, this isn't a high success area. Look at things like iLike, MOG, spotify, amiestreet, imeem, playlist, etc. Lots of these sites had big backing and lots of users, but aren't making much if any money.
So, how do you go from 25 paying customers to 50? To 100? to 1000???
I turned my focus away from music because as an industry, I just don't see it leading to financial success.
There are those who are doing it, but it is more challenging than other areas.
My 2cents.